It was announced in September 2022 that the Health and Social Care Levy will no longer go ahead. From 6 November 2022, the temporary 1.25 percentage point increase in National Insurance rates is being reversed for the rest of the financial year which finishes on April 5, 2023. The introduction of a separate Health and Social Care Levy tax in April 2023 has been cancelled.
The Prime Minister has unveiled plans to shake up social care in England, by increasing National Insurance contributions so that people can get care without facing “catastrophic” costs.
Under his proposals, National Insurance contributions will increase by 1.25% a year as part of a new Health and Social Care Levy, adding £130 to annual NI bills for someone earning £20,000, and £255 for someone earning £30,000 a year.
Here, we explain what’s changing and why, and how much extra you might have to pay once the reforms come into effect.
Why is the current social care system being reformed?
The social care system has been in need of reform for many years. At the moment, anyone in England with assets over £23,250 must pay for their care in full. A decade ago, the independent Dilnot Commission estimated that around one in ten adults aged 65 faced lifetime care costs of more than £100,000, but rising care costs mean that this estimate has now been revised to one in seven.
The changes announced this week aim to prevent families from racking up care bills they can’t afford and often aren’t prepared for. You can find out more about the current care system and how to cover costs in our guide How to pay for long-term care.
Funds raised via the reforms will also be used to provide additional support for the NHS, which is under huge pressure due to Coronavirus. Boris Johnson said: “Before the pandemic, nine out of ten were waiting fewer than 25 weeks in England, but that has now risen to 44 weeks. The number of NHS patients waiting for tests, surgery and routine treatment in England is at a record high of 5.5 million and could potentially reach 13 million over the next few years.
“Around seven million patients in England did not come forward for treatment during the pandemic – and it is right that they should now be seen and given the treatment that they need. So while hard-working NHS staff are doing their best, it has been estimated that it may take the NHS up to a decade to clear treatment backlogs without concerted action.”
What are the main changes being made?
There are several changes due to come into effect in 2022 and 2023:
A new Health and Social Care Levy will be introduced from April 2022, when NICs for working age employees, the self-employed and employers will increase by 1.25%. From April 2023, once HMRC’s systems are updated, this 1.25% Levy will be formally separated out and will also apply to individuals working above State Pension age, and NICs rates will return to their 2021-22 levels.
If your assets are less than £20,000, from October 2025, you won’t have to make any contribution toward care costs from your savings or the value of their home. Anyone with assets of between £20,000 and £100,000 will be eligible for some means-tested support,
A new cap will be introduced, so that from October 2025, the maximum you’ll have to pay for personal care if you’re starting adult social care is £86,000 over your lifetime.
A new means test for adult social care will come into effect in October 2025, so that if your total assets are over £100,000, you must cover care fees in full yourself. However, the new cap means that the maximum you’ll have to pay over your lifetime towards personal care costs will be £86,000. If by contributing towards care costs, the value of your remaining assets falls below £100,000, you’re likely to be eligible for some financial support.
Will I face extra costs if I’ve reached State Pension age?
You’re usually exempt from having to make NI contributions once you reach State Pension age, but pensioners who are still working will also have to contribute to the new Levy. It will apply to all employees and employers liable for Class 1 NICs and self-employed individuals liable for Class 4 NICs.
Becky O’Connor, head of pensions and savings at Interactive Investor, said: “The introduction of this levy is a kiss goodbye to one long-held advantage of continuing to work past the State Pension entitlement age, which is that you wouldn’t have to pay National Insurance contributions on what you earn.
“From next April all workers, including some of the more than one million over-65s in employment, will pay the new levy on National Insurance and will feel that bit poorer. Whilst working past State Pension age may be a choice for some, it’s a horrible irony that many remain in employment out of necessity, because their pension provision is not adequate to fund their whole retirement and they are now being asked to pay more for the privilege.”
How much more National Insurance will I have to pay?
According to the government, a typical basic rate taxpayer earning £24,100 will contribute an additional £180 in National Insurance contributions a year under the new system, equivalent to £3.46 per week. A typical higher rate taxpayer earning £67,100 will contribute an extra £715, or £13.75 a week. Check our table below to see how much extra you might have to pay once the changes come into effect.
|Annual salary||Current yearly payment||Extra amount you’ll pay|
Will I face any other extra costs?
You might – the Government is also increasing dividend tax rates by 1.25% to help fund its new package of measures to support the health and social care system.
You’ll pay dividend tax if you receive dividend income from shares, which falls outside of your personal allowance (£12,570 in 2021-22) and the dividend allowance (£2,000 in 2021-22). The government claims most investors won’t be affected by this change, as shares held in individual savings accounts (ISAs) are not subject to dividend tax. This, combined with the dividend allowance and the personal allowance, means around 60% of people with dividend income outside of ISAs are not expected to pay any dividend tax or be affected by this change in 2022-23.
Basic rate taxpayers who are affected by the changes to dividend tax are expected to pay, on average, an additional £150 on their dividend income in 2022-23, whilst higher rate taxpayers are likely to have to fork out an additional £403 on their dividend income.
Current dividend tax rates, and the new rates from 2022/23 are shown below:
How dividend tax rates are changing:
|Basic rate||Higher rate||Additional rate|
|Current 2021/22 dividend tax rates||7.5%||32.5%||38.1%|
|2022/23 dividend tax rates||8.75%||33.75%||39.35%|
Sarah Coles, personal finance analyst at Hargreave Lansdown said: “Investors have had to crawl through a horrible dividend drought during COVID, and were just getting back on their feet, so this will feel like a particularly nasty attack on their income.
“Given that so many of them will also have a higher National Insurance bill, it deals them a double blow at a difficult time. It means it’s even more important to make sure you shelter as much of your investments as possible in ISAs where all dividends are completely free of tax.”
You can find out more about ISAs in our guide Everything you need to know about ISAs.
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